The BIS Innovation Hubs in London and Europe completed a joint DLT project that explored cross border payments using Payment versus Payment (PvP) as part of Project Meridian FX. It involved the central banks of England, France, Germany and Italy. PvP for foreign exchange (FX) means both sides of the transaction settle simultaneously or atomically, considerably reducing Herstatt risk.
That’s the risk that one of the currency payments is made, but the payer doesn’t receive the other currency.
It built on the London Hub’s Project Meridian trial for real estate settlement that used a DLT-based synchronization solution to simultaneously transfer a property title and payment using the Real Time Gross Settlement (RTGS) system.
In the case of Meridian FX, the aim was to simultaneously exchange pounds and euros. Key goals included demonstrating that the synchronization solution could work with a variety of technologies and assets. Specifically, the interoperability with a DLT-based system with a non-DLT based one. A key feature is earmarking, a kind of escrowing of funds, waiting for the signal to pay.
Meridian FX demonstrated that it only needed one of the legs of the transaction to support earmarking in order to work. In that case, the timing of the payment would be driven by the platform that doesn’t support earmarking. Once the non-earmarked payment is initiated, the earmarked funds on the other payment leg can automatically be released.
The European central banks used the same three platforms that were part of the Eurosystem DLT settlement trials in central bank money. Hence, Germany used its Trigger Solution, which has a Trigger Chain that makes a payment via the Target 2 system. France’s solution used DL3S, a wholesale CBDC also linked to the Target 2 system. And Italy used its TIPS Hashlink solution.
Liquidity savings
While the English side used a simulated RTGS system, some liquidity optimizations were explored as part of the synchronization system. Each node on the Ethereum-compatible DLT platform has a synchronization operator that controls the payment queue. Over a particular time period, it might prioritize payments of banks that only have transactions in one direction. Banks that are sending and receiving then may be able to use incoming payments to fund outgoing ones. Additionally, it trialed a more typical netting approach.
One of the most interesting additional features was supporting multiple linked PvP transactions that it referred to as (PvP)+(PvP). This might involve exchanging two currencies (say Yen for Mexican Peso) that use GBP as a bridging currency. Rather than having two independent legs, with the risk of ending up holding a currency that’s not needed, they become one atomic transaction.
By demonstrating that PvP settlement can work across different technological infrastructures – both DLT and non-DLT systems – Project Meridian FX showcases practical paths toward reducing settlement risk in foreign exchange markets. This work aligns with global efforts to make cross border payments faster, cheaper, and safer through innovation.
